Do These 3 Checks Before Buying CHUNGDAHM Learning, Inc. (KOSDAQ:096240) For Its Upcoming Dividend

Readers hoping to buy CHUNGDAHM Learning, Inc. (KOSDAQ:096240) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 29th of December, you won't be eligible to receive this dividend, when it is paid on the 16th of April.

CHUNGDAHM Learning's next dividend payment will be ₩500 per share, and in the last 12 months, the company paid a total of ₩600 per share. Looking at the last 12 months of distributions, CHUNGDAHM Learning has a trailing yield of approximately 2.9% on its current stock price of ₩20550. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for CHUNGDAHM Learning

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. CHUNGDAHM Learning paid out 200% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 17% of its free cash flow last year.

It's good to see that while CHUNGDAHM Learning's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see how much of its profit CHUNGDAHM Learning paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see CHUNGDAHM Learning's earnings per share have been shrinking at 2.8% a year over the previous five years.

We'd also point out that CHUNGDAHM Learning issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. CHUNGDAHM Learning has delivered 12% dividend growth per year on average over the past 10 years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. CHUNGDAHM Learning is already paying out 200% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Is CHUNGDAHM Learning worth buying for its dividend? It's never great to see earnings per share declining, especially when a company is paying out 200% of its profit as dividends, which we feel is uncomfortably high. However, the cash payout ratio was much lower - good news from a dividend perspective - which makes us wonder why there is such a mis-match between income and cashflow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with CHUNGDAHM Learning. Case in point: We've spotted 5 warning signs for CHUNGDAHM Learning you should be aware of.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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